Potential and Opportunity for Foreign Direct Investment in Thailand

This report analyzes the potential and opportunity for foreign direct investment in Thailand based on various factors such as political, economic, socio-cultural, and technological influences, natural resource competitive advantage, foreign currency and exchange influences, trade policies, barriers, and incentives, and existing levels of foreign direct investment.

Running Head: POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILANDi
POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND
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POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND ii
Executive summary
Globalization is currently occurring at a fast pace in today’s world of business. Many
nations have realized the value of international trade and have supported their individual
businesses to venture into it (Archibugi & Iammarino, 2012). Also various nations are trying
their best to attract and maintain foreign direct investments in their economies to foster their
economic performance and access goods and services which they lack competitive advantage in
producing. Thailand is among the best performing nations in the Asia-Pacific region with great
potential and opportunity for foreign direct investments. Foreign direct investment in Thailand is
a crucial element which contributes much towards improving its economic performance.
Currently estimates show that foreign direct investment accounts for more than 50 percent of the
total exports of Thailand. This report aims at accessing the potential and the opportunity of
Thailand to attract and maintain foreign direct investments based on various factors which
include Political, Economic, Socio-cultural and Technological Influences, Natural resource
competitive advantage, Foreign currency and exchange influences, Thailand trade policies,
barriers and incentives and the existing levels of foreign direct investments.

Running Head: POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILANDiii
Table of Contents
Executive summary.....................................................................................................................................ii
Introduction.................................................................................................................................................1
Political, Economic, Socio-cultural and Technological Influences..............................................................2
National resource competitive advantage....................................................................................................4
Foreign currency and exchange influences..................................................................................................4
Thailand trade policies, barriers and incentives...........................................................................................5
Existing levels of foreign direct investment.................................................................................................6
Summary and recommendations..................................................................................................................7
References...................................................................................................................................................8

Running Head: POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND1
Introduction
Thailand is among the richest nations in the Asia-Pacific region. It embraces a free
economy with most of its economic policies targeting on improving trade openness in the
country. It has been ranked position 53 by the 2018 index in terms of economic freedom with a
score of 67.1.Investment and business freedom scores have improved to 55.0 and 77.2
respectively and this has led to the general improvement in economic freedom of the nation by
0.9 points. In terms of economic performance of the Asia-Pacific region nations, Thailand has
been ranked position 12 out of the 43 nations in the region. The economic performance of
Thailand is above the expected average score both at the regional and world at large
(Phongpaichit & Baker, 2015).
Foreign direct investment occurs when firms and individuals from other nations invest in
targeted business interests in another country. It usually takes place as nations invest or rather
trade across their national boundaries. Today’s world of business has become more globalized.
Many businesses have realized the various benefits associated with international trade and with
the support of their governments, they have moved a step further in terms of trade and invested
in foreign nations of interest (Cavusgil et al, 2014). Various nations have also encouraged
foreign direct investments in their economies. This has been done through implementation of
foreign direct investment supportive economic policies in order to attract and maintain more
foreign investors and foster their economic growth and also benefit much from products which
they have no comparative advantage in terms of production.
Foreign direct investment in Thailand is a crucial element which has been contributing
much towards improving its economic performance. Thailand is one of the nations which have

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 2
high foreign direct investments in the Asia-Pacific region and still remains to be the centre of
attraction for foreign investments in the region. The United Nations Conference on Trade and
Development (UNCTAD) World Investment Report 2018 indicated that foreign investment in
Thailand improved much from the year 2016 to 2017 and reached $7.6 billion. This was as a
result of the increase in foreign investment by the ASEAN nations, Japan and the European
nations. By the end of 2017, the foreign direct investments in Thailand increased by 15 percent
and reached $219 billion. This was due to introduction of incentives in various investment
sectors such as the advancement in technology, research and development (R & D) and
innovative activities. Thailand still has various opportunities for foreign direct investment and
has increased its potential of attracting and maintaining more foreign direct investments. In this
research, the various opportunities of foreign direct investment in Thailand and its potential of
attracting and maintaining foreign direct investments have been analyzed.
Political, Economic, Socio-cultural and Technological Influences
The political system of Thailand has been unstable but it is currently improving with the
next elections being expected to improve it further. It is the weakest political system among the
ASEAN nations (Hirsch, 2013). Thailand economy recorded an increase of 3.9 percent in terms
of economic growth which is measured using the gross domestic product. Although this was a
good move still citizens especially investors had less trust about the future of Thailand’s politics.
Only 16 percent anticipated the political climate to be stable as compared to that of the
neighboring nations such as Philippines which had 74 percent, Malaysia had 28 percent,
Singapore had 34 percent and Indonesia had 98 percent trust in their political stability (Hill &
Hult, 2016). Despite the low level of Thailand’s political system trust, statistics show that it has

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 3
been improving as only 8 percent trusted the system in the 2017 third quarter, 10 percent in the
fourth quarter and 16 percent in the first quarter of 2018 which is a good move.
The economy of Thailand has been the centre of attraction for many investors due to its
superb performance for the past years since the 2008 world global financial crisis. The economy
has been improving its performance each preceding year with statistics showing that from 2014
the overall economic growth which is measured in terms of the growth of the gross domestic
product averaged 3.1 percent. The last quarter of 2017 recorded a GDP growth rate of 3.9
percent and predictions showed that the economy is expected to grow by 4.1 percent by the end
of 2018 (Czinkota & Ronkainen, 2013). The inflation rate of Thailand has been kept relatively
low below 2 percent for the past four years. Currently the inflation rate stands at 0.9 percent and
even for the past 3 years it has been lower than this. This shows that the prices of goods and
services are relatively stable in the long run. The unemployment rate in Thailand has been kept
low at a rate of 0.6 percent. This shows that its economy is growing and the education system
offers quality training to students which enhance their employability skills. The Bank of
Thailand has kept interest rates relatively low at 1.5 percent for the last three years. This highly
motivates investors into the economy as they can acquire capital at lower costs to expand their
operations.
The government of Thailand has come up with road-shows recently which are aimed at
encouraging investors to venture into a $43 billion flagship Thailand’s Eastern Economic
Corridor investment project. The main agenda of this project is to develop and improve high-tech
industries in Thailand (Fagerberg, 2017). The social cultural practices of the citizens of Thailand
are good and do not discourage foreign direct investment in any way.

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 4
In a nutshell, Thailand a great potential and opportunity for foreign direct investment as
its political system is improving. Its economy is also growing with stable prices of commodities
and low interest rates. The government is also currently targeting development of high-tech
industries in the country.
National resource competitive advantage
Thailand has competitive advantage in the following key sectors of the national economy
due to its valuable natural resources: Automotive, Agriculture, Tourism and Electronic
components (Arbhabhirama et al, 2014). The various natural resources of Thailand which make
it competitive in these sectors include coal, gold, tungsten, precious stones, lead, zinc, tin,
manganese, rice, fruits, rubber, cane sugar, seafood and various plants and animals. These
sectors have been contributing much towards Thailand’s economic growth especially tourism.
The sectors have seen Thailand increase its exports to US$236.69 billion in 2017. The main
export goods include machinery, chemicals and plastics, electronics, automobiles and automotive
parts, foods and wood, stone and glass and textiles and furniture. Due to these sectors, the
government of Thailand has highly developed its infrastructure such as roads and airports. There
are still many opportunities for foreign investors into sectors related to these national ones. For
example there are great opportunities of investing in developing road networks in Thailand and
tourism supportive industries such as restaurants and leisure zones especially casinos.
Foreign currency and exchange influences
The bank of Thailand has been maintaining relatively stable foreign currency exchange
rates. The bank ensures that the prevailing foreign currency exchange rates are affordable in the
prevailing economic conditions (Baharumshah, 2014). The most commonly used foreign

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 5
currencies in the economy of Thailand are the US dollars and the Euro. The bank of Thailand has
been keeping their exchange rates stable and also that of other foreign currencies such as the
Japanese Yen. The current exchange rates for the US dollars and the Euro against the Thailand
Baht are 32.86 and 37.72 respectively. The foreign currency exchange rates in Thailand remain
stable due to its stable low inflation which makes the prices of goods and services to remain
stable. Foreign direct investors are confident about the stability of the foreign exchange rates and
undertake their transactions with great future certainty. Many investors have been attracted to
invest in Thailand due to its low stable inflation which stabilizes the foreign exchange rates.
Thailand trade policies, barriers and incentives
The government of Thailand has come up with various policies in order to attract and
maintain foreign direct investment. The Board of Investment of Thailand has come up with a
policy which aims at promoting investment activities which positively impact the society and
environment for seven years. This investment promotion strategy gives prioritizes the high-tech
and creative industries in order to improve digitalism in the economy and promote the utilization
of locally available natural resources. Some businesses especially those in the media, fishery,
livestock farming and rice are allowed only for the citizens of Thailand and any foreign
investment in the mentioned sectors is allowed a less than 50 percentage of ownership (Bailey &
Jagtiani, 2015). The rate of income tax is 35 percent while that of the corporate tax is 20 percent.
The total tax burden is set to be equal to 15.7 percent of the total domestic income. Foreign
investors currently are allowed to wholly own their private companies. These policies have
highly attracted foreign direct investment in Thailand.

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 6
However there are certain barriers to trade which need to be eliminated or rather
streamlined to attract and maintain foreign direct investment in Thailand. Most of these barriers
are non tariff as the average tariff rate is set at 3.5 percent which is relatively good for foreign
investors (Peng & Meyer, 2016). Licenses are required in order to start a business. The process
of acquiring the licenses is complex and most of times is impacted by the corrupt government
officials who have continuously lowered government integrity. The government of Thailand also
sometimes engages price control policies on foreign goods and services. The prices may be
unfavorable compared to the expenses incurred and may discourage foreign direct investment.
Sanitary and Phytosanitary measures are applied on agricultural products from certain nations
such as the United States to make sure that they meet the set standards which most of times are
high.
The board of investment of Thailand offers various incentives in certain sectors of the
economy to attract foreign investment in these sectors. These sectors include Automotive,
Agriculture and food, High Value Added services such as tourism, leisure and health, Electronics
especially those related to information, communication and technology (ICT) and Renewable
and alternative energies (Griffin & Pustay, 2014). These incentives include: companies are
exempted from tax for eight years and thereafter the company tax is reduced by 50 percent for 5
years and double transport, re-supply and electricity deductions. These incentives have highly
attracted foreign investors to invest in these sectors.
Existing levels of foreign direct investment
Foreign investment in Thailand improved much from the year 2016 to 2017 and reached
$7.6 billion according to the United Nations Conference on Trade and Development (UNCTAD)

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 7
World Investment Report 2018. This was as a result of the increase in foreign investment by the
ASEAN nations, Japan and the European nations. By the end of 2017, the foreign direct
investments in Thailand increased by 15 percent and reached $219 billion. This was due to
introduction of incentives in various investment sectors such as the advancement in technology,
research and development (R & D) and innovative activities (Lim & Pang, 2016). Some of these
incentives include tax exemptions and reductions and the right to total ownership of companies.
The government has also eased the time required for the start of a new business by reducing the
new business starting days from 27.5 to 4.5. The process of acquiring licenses and visa has also
been made easy. All these reforms have contributed much towards the rising foreign direct
investment in Thailand and still much better results are anticipated in future.
Summary and recommendations
Based on the accessed factors, Thailand has a great potential and opportunity for
attracting and maintaining foreign direct investments. The political system of Thailand though
unstable has been improving over the past years to create conducive environment for investors.
The economy of Thailand has been doing well in terms of economic performance. Both the
inflation and interest rates have been kept at rates of 0.6 percent and 1.5 percent respectively.
This has made the overall prices in the economy of Thailand to remain stable enabling investors
to forecast future operations with great certainty. The foreign exchange rates have also been kept
stable by the bank of Thailand to ensure survival of businesses considering the prevailing market
conditions. The government of Thailand has offered various incentives to certain sectors of the
economy most of which venture in improvement of technology in the country. These incentives
have attracted more investors to invest in the distinguished economy sectors. The government of
Thailand should remove various restrictions and trade barriers to attract more foreign direct

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 8
investments. The process of acquiring trading licenses should be made easy for foreign investors.
Also some businesses which are reserved for Thailand nationals should be open to foreign
competitive to improve efficiency in these sectors (Gupta, Govindarajan & Wang, 2014).
References
Arbhabhirama, A., Phantumvanit, D., Elkington, J., & Ingkasuwan, P. (2014). Thailand: natural
resources profile. Oxford university press.
Archibugi, D. and Iammarino, S. (2012) The globalization of technological innovation: definition
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Bailey, W., & Jagtiani, J. (2015). Foreign ownership restrictions and stock prices in the Thai
capital market. Journal of financial economics, 36(1), 57-87.
Baharumshah, A. Z. (2014). The effect of exchange rate on bilateral trade balance: new evidence
from Malaysia and Thailand. Asian Economic Journal, 15(3), 291-312.
Cavusgil, S. T. et al.(2014) International Business: The New Realities, Pearson Education,
Sydney. ISBN: 9781442533561.
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Fagerberg, J. (2017) Technology and International Differences in Growth Rates, Journal of
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Griffin, R.W. & Pustay, M. W. (2014) International Business, A Managerial Perspective,
Addison-Wesley, Reading, Mass. ISBN: 9781292018218.

POTENTIAL AND OPPORTUNITY FOR FOREIGN DIRECT INVESTIMENT IN THAILAND 9
Gupta, A.K.,Govindarajan, V.,Wang, H.(2014) The Questfor Global Dominance: Transforming
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Lim, L. Y., & Pang, E. F. (2016). Foreign Direct Investment and Industrialisation: Malaysia,
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